CANADA FX DEBT-C$ dips as Fed statement boosts greenback

3 Min Read

(Adds strategist quote and details on Fed decision and updates
prices)
* Canadian dollar at C$1.3717, or 72.90 U.S. cents
* Bond prices lower across the yield curve
* 2-year spread vs Treasuries nears widest in 10 years
By Fergal Smith
TORONTO, May 3 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Wednesday, holding near
14-year lows, as the Federal Reserve's statement after its
policy meeting triggered broader gains for the greenback.
The U.S. dollar climbed against a basket of major currencies
after the Fed left interest rates on hold but signaled it was
still on track for two more hikes this year.
"A Fed that looks through the weakness in Q1 (first
quarter), they are still fairly optimistic, so I think that's
really uplifting the U.S. dollar," said Jimmy Jean, senior
economist at Desjardins.
In contrast, recent strength in the Canadian economy has
been overshadowed by U.S. tariffs on Canadian softwood lumber, a
more uncertain outlook for the North American Free Trade
Agreement and lower prices for oil, one of Canada's major
exports.
Also, the funding crisis at mortgage lender Home Capital may
spark a welcome cooling in Canada's housing market and take
pressure off the Bank of Canada to raise interest rates.
"I still think the Canadian dollar has ways to go lower ...
markets will remain anxious about the prospects for the Canadian
economy," Jean said.
At 4 p.m. EDT (2000 GMT), the Canadian dollar was
trading at C$1.3717 to the greenback, or 72.90 U.S. cents, down
0.1 percent.
The currency traded in a range of C$1.3680 to C$1.3740. On
Tuesday it had slumped to a fresh 14-month low at C$1.3758.
Still, the Canadian dollar will weather a "perfect storm" to
regain some ground over the coming months, a Reuters poll showed
on Wednesday, as a pickup in the domestic economy could prod the
Bank of Canada to raise interest rates by next year.
U.S. crude oil futures settled up 16 cents at $47.82 a
barrel after a volatile session as the market mulled U.S. crude
inventory data.
Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries, with the two-year
down 4.5 Canadian cents to yield 0.702 percent and
the 10-year falling 26 Canadian cents to yield 1.545
percent.
Canada's 2-year yield fell 1.1 basis points further below
its U.S. counterpart to a spread of -59.4 basis points, at
nearly its widest spread in 10-years.
Canada's trade report for March is due on Thursday, and the
April employment report is due on Friday.
(Reporting by Fergal Smith; Editing by Nick Zieminski and
Sandra Maler)